The French "rock-star economist" Thomas Piketty has been called the "new Karl Marx" by The Economist Newspaper. The Guardian newspaper called his lecture at the London School of Economics, the "hottest Economics ticket in town". Piketty's emphasis on wealth distribution has made him the target of many free-market capitalist commentators and newspapers. But I wonder what Margaret Thatcher would have made of his ideas on strengthening the middle class through the redistribution of wealth.
The French economics professor Thomas Piketty is on a worldwide lecture tour to promote his surprise best selling book (696 pages, no less) “Capital in the 21st Century”.
What is the book about? The Economist
magazine summarises it in 4 paragraphs thus:
IT IS the economics book taking the world by
storm. "Capital in the Twenty-First Century", written by the French
economist Thomas Piketty, was published in French last year and in English in
March of this year. The English version quickly became an unlikely bestseller,
and it has prompted a broad and energetic debate on the book’s subject: the
outlook for global inequality. Some reckon it heralds or may itself cause a
pronounced shift in the focus of economic policy, toward distributional
questions. This newspaper has hailed Mr Piketty as "the
modern Marx" (Karl, that is). But what’s it all about?
"Capital" is built on more than a
decade of research by Mr Piketty and a handful of other economists, detailing
historical changes in the concentration of income and wealth. This pile
of data allows Mr Piketty to sketch out the evolution of inequality
since the beginning of the industrial revolution. In the 18th and 19th
centuries western European society was highly unequal. Private wealth dwarfed
national income and was concentrated in
the hands of the rich families who sat atop a relatively rigid class structure.
This system persisted even as industrialisation slowly contributed to rising
wages for workers. Only the chaos of the first and second world wars and the
Depression disrupted this pattern. High taxes, inflation, bankruptcies, and the
growth of sprawling welfare states caused wealth to shrink dramatically, and
ushered in a period in which both income and wealth were distributed in
relatively egalitarian fashion. But the shocks of the early 20th century have
faded and wealth is now reasserting itself. On many measures, Mr Piketty
reckons, the importance of wealth in modern economies is approaching levels
last seen before the first world war.
From this history, Mr Piketty derives a grand
theory of capital and inequality. As a general rule wealth grows faster than
economic output, he explains, a concept he captures in the expression r > g (where
r is the rate of return to wealth and g is the economic growth rate). Other
things being equal, faster economic growth will diminish the importance of
wealth in a society, whereas slower growth will increase it (and demographic
change that slows global growth will make capital more dominant). But there are
no natural forces pushing against the steady concentration of wealth. Only a
burst of rapid growth (from technological progress or rising population) or
government intervention can be counted on to keep economies from returning to
the “patrimonial capitalism” that worried Karl Marx. Mr Piketty closes the book
by recommending that governments step in now, by adopting a global tax on
wealth, to prevent soaring inequality contributing to economic or political
instability down the road.
The book has unsurprisingly attracted plenty of
criticism. Some wonder whether Mr Piketty is right to think the future will
look like the past. Theory argues that it should become ever harder to earn a
good return on wealth the more there is of it. And today’s super-rich mostly
come by their wealth through work, rather than via inheritance. Others argue
that Mr Piketty’s policy recommendations are more ideologically than
economically driven and could do more harm than good. But many of the sceptics
nonetheless have kind words for the book’s contributions, in terms of data and
analysis. Whether or not Mr Piketty succeeds in changing policy, he will have
influenced the way thousands of readers and plenty of economists think about
these issues.”
Piketty has stirred controversy with the
last part of his book in which he suggests a tax being imposed on
net-wealth. This and the word “Capital”
in he title of his book, has stirred those who believe in non-interventionist doctrine
of capitalism, to accuse him of all sorts of things: being a Marxist (which he
is not), presenting false data (he is ready to debate and show that he has
not), beating his ex-girlfriend the current French culture minister well known
for her stormy love affairs (which he denies) and finally committing the
ultimate crime in the eyes of Anglo-Saxon defenders of capitalism red in tooth
and claw, that of being French (which he is).
Piketty is very presentable and speaks
excellent English with a heavy French accent.
He explains his findings in a very clear presentation with low-tech
slides, which is accessible to normal mortals not familiar with the intricacies
of Economics. From time to time he
loosens things up with self-deprecating and witty remarks about himself, his
subject and his opponents’ thinking.
He is ready to robustly defend the research
he and his numerous collaborators produced about the development of income and
wealth since the industrial revolution. At the same time, he is intensely relaxed
about people who draw entirely different conclusions about the need for policy
changes than he does. In his view, such differences of view are par for the
course for social science research. Moreover, he says, that while social
sciences can be very useful in explaining the past, the future remains
unpredictable so that his or anybody else’s hunch about how things might
develop are speculation and may be proved entirely wrong by unexpected events
and developments.
Piketty believes in Western style democracy
and a capitalism moderated by some state intervention to prevent or correct
developments that may constitute a danger for both. Based on his findings he believes that
capitalism, as we know it, tends to greater concentration of wealth at the top.
If this development is allowed to continue unchecked, it risks undermining the
existence of a middle class on which democracy, freedom and successful economic
development under the capitalist system depend. He explains that it is with
that reasoning that he makes the policy recommendations based on his findings.
I have read a few chapters of his book, looked
at a number of newspaper articles on it, and have now seen the “rock-star
economist” perform at the lectern in what the Guardian newspaper described as “the
hottest economics ticket in town”. My conclusion is that Piketty has done
something very useful in being one of the first to do empirical research on the
development of wealth and income since the industrial revolution in a large
number of countries. Rather than just theorising about wealth, researchers and
policy-makers now have a lot of data to draw on. Piketty is a creative
researcher, also very good at presenting and explaining his data in plain
English. The heavy French accent is not there when you read the book and does
not detract from his presentation when he speaks. Thomas Piketty has his views
on politics, but contrary to famous Nobel prize winning economists like Milton
Friedman or Paul Krugman he is no ideologue or polemicist, keen on being a
major influencer of political decisions, but primarily a researcher. He is
happy to share his political views and make policy recommendations; but they
are not where his main interests lie.
Finally, I cannot help but wonder what
Margaret Thatcher would have made of Piketty’s research and ideas. After all, her most revolutionary policy was
to turn thousands of council house tenants into home owners, probably the most
significant transfer of “capital” from the state to low-income, low-wealth
households, giving them a unique opportunity to own and build some capital of
their own and join the ranks of the middle-class. Could it be that Margaret Thatcher was an
instinctive progressive fighter for boosting the ranks of the “capital-owning”
middle class, an idea very dear to Thomas Piketty’s heart?
